‘Wealth’ That Isn’t Really There – “We live in a world where people have increasingly lost the distinction between ‘making money’ and ‘producing wealth’. Most people out there would be perplexed by the notion that there is even a difference at all.”

Announcer: “Andreas Conrad knows the market pain all too well… he’s trying to downsize, but can’t sell his duplex, originally priced at just over $2M, now $300K cheaper…
It’s been on the market for five months and Conrad says, without a sale, he’ll be forced out of retirement.”

Conrad: “For me now it means I will definitely have to go back to work… at the, at the end of the summer.. ah.. if nothing moves.”

Announcer: “This homeowner is just hoping his duplex sells, and fast. If it does, he’ll be back in the market to buy a condo right away.”

Many Vancouverites are overdependent on their RE holdings for their financial health, and for their retirement plans.
This gentleman appears to have retired early based on the paper ‘value’ of his RE holdings, and already his plans are awry.
It is noteworthy that this is occurring very early in the down-cycle. We anticipate that many more will find themselves in similar situations once price descents become significant.
– vreaa
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“Am I suppose to feel sorry for a guy who has a home valued around $2 mill and can not sell it and have to return to work. I do not know the age of this man but he looked like he wanted to retire early off his home.”
– leo, at CTV.ca, 6 Sep 2012 2:42pm

“Yeah, Andreas…people elsewhere have to actually work to make money, cuz their dwelling-place doesn’t actually generate income so they can retire at 50…”
– kabloona at VCI 5 Sep 2012 6:57pm

“I saw that guy on CTV news too. Crying that he’s going to have to get a job soon if he can’t flip his crack shack for 2 million. He didn’t look old enough to be retired to me. I said out loud to the TV, “Good, you should get a job.” Why would anyone feel entitled not to work for a living? Why would anyone go on the news and expect sympathy that they might have to get a job to earn an income?”
– Joe_Blown_Away_By_High_Housing_Costs at VCI 5 Sep 2012 7:09pm

“We live in a world where people have increasingly lost the distinction between ‘making money’ and ‘producing wealth’. Most people out there would be perplexed by the notion that there is even a difference at all. There is no less admiration for someone who becomes a millionaire by picking the right stocks than someone who gets rich building a real business or producing a tangible service that creates real wealth.
In fact, given the choice, the overwhelming majority of people would rather get rich without working at all, which is a big part of why we currently have the most morbidly obese housing bubble in history.
Sadly, I don’t think people will wake up to the distinction even after the bubble bursts. Since so many people will be negatively affected (70% of home owning Canadians), expect to see a whole lot of resentment and bitterness at all the ‘lost wealth’ rather than a realization that it was never there in the first place.”
– Yalie at VCI 5 Sep 2012 7:59pm
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The CTV piece was also noteworthy for these two quotes:

Andrey Pavlov, SFU: “The time on the market has tripled since 2 months ago, so that’s a crash by any measure.” [We’d agree with the sentiment but disagree with the semantics. A crash will only be said to have occurred when prices plunge. -ed.]

Cameron Muir, RE Association: “It wasn’t too long ago that we had the greatest financial crisis since the great depression, followed by a global recession. If that wasn’t the tipping point or a trigger for a deflation of an asset bubble, I don’t know what is.” [In 2008 Vancouver RE was rescued by emergency low interest rates, which it sorely did not need. This delayed our hour of reckoning, but it seems now upon us. -ed.]
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40 responses to “‘Wealth’ That Isn’t Really There – “We live in a world where people have increasingly lost the distinction between ‘making money’ and ‘producing wealth’. Most people out there would be perplexed by the notion that there is even a difference at all.””

“It wasn’t too long ago that we had the greatest financial crisis since the great depression, followed by a global recession. If that wasn’t the tipping point or a trigger for a deflation of an asset bubble, I don’t know what is.”

Agree that low interest rates and userous amortization periods rescued us in many ways, but not sure the trigger was fully pulled here in Vancouver. We were, and still are, mostly buoyed by an exceptionalist mindset: “it won’t happen here” “BPOE” “we don’t have subprime” “our banks are safe” “owelympics” blah blah blah

Agreed. Speculative behaviour, based on anticipation of ever higher prices (driven by the kind of sentiment you describe) has always been the major ‘engine’ of our mania.
In 2008, the market had topped and was beginning it’s descent (much the same place we find ourselves in now) when interest rates were dropped to unprecedentedly low levels… That act rescued Vanc RE that time round. It allowed the sentiment engine to regain it’s feet and gave us the last leg of the bubble. Can’t see such a rescue this time round.

>“Andreas seems like a perfectly nice guy to me; just having a hard time adjusting his expectations.”

I think this is a very good description of a very large chunk of Canadian society right now. Good people who have been misled by the financial culture of the time.

My parents are just entering retirement age. They never include their house, which was paid off two decades ago, in their financial calculations for their retirement plan. The only way they are going to sell it is when their health gets to the point where they can’t live by themselves any more. My father, who worked as a CFP briefly, describes a house as “the most illiquid and most immovable asset you can own. It’s a service, a consumer good and a place to raise a family, not an investment.”

Your father is a wise man.
I will drink to his wise words tonight.
In other news, I am glad I read bearish RE blogs, but I feel it may have turned me off real estate indefinitely. I now see housing as a fridge and I detest the idea of owning a big steaming pile of risk, do the banks hate me ?

I have lived in many countries and consider my self quite successful in many ways. Tell me this:

Why does everyone in Canada (not trying to generalize but this seems to be a national theme) is so looking forward to retire, or be in government jobs, or try to find ways to make money without actually creating wealth.

Whatever happened to free enterprise, pursuing what you love and create wealth and happiness at the same time?

All you see is cry babies and whiners like the guy in this anecdote. These guys do not deserve any sympathy

First, let’s grant that Canadians on average may not be as risk seeking as other nationalities. This is especially striking as our neighbours to the South are largely like us except for the lack of universal health care, which ought to make them more attracted to large employers and less to starting businesses.

What’s wrong with looking forward to retire? Leisure is the ultimate economic surplus. It’s awfully hard to make money without generating wealth. Even in the case of option and commodity trading, which are zero sum games, it’s generally believed that liquid public markets are a net good in themselves. Compare and contrast with someone who’s growing pot, or turning powder cocaine into crack rock. Are they generating wealth, or just making money? Canada does have a lot of large, successful international concerns, many of which are still being run by their founders.

Rather, more to do with stifling regulation, government micromanagement, and high taxes which is something quite unique about the Canadian system. The system is not very conducive to promoting private enterprise

Pretzels, I was self-employed for many years and have launched a small business; there are lots of small business owners working on making value that I know. We’re Canadian, and not, as far as I can see, unicorns.
Now, whether I’m personally going to be any good at creating wealth is an open question.

I may finally have convinced the Mrs. that being a Perma-Renter may not be such a bad thing. I currently rent a $million house in the GTA for half what it would cost to own from a Chinese landlord who resides in Shanghai. My landlord has dropped the rent twice over the past 4 years because he desperately wants me to stay (no bragging but I am a AAA tenant even with teenage kids). I’ve travelled more these past 4 years since I became a Renter and have had no (Zero, Nada) financial stress even after cutting back my work week to 4 days instead of 6. I’ve logged more miles on my bike these past 4 years than a cab driver in Toronto
Finally theMrs. Is beginning too enjoy the lifestyle rather than crying over bricks and mortar that I sold off in ’08. Sure i could have made a bundle had I hung on to it but what value would I place on the life I’ve enjoyed?
I seriously thought I would buy back when the crash comes but now I think why? I can have fredom 55 or 56-57 by the time the younger one will finish school. I know many places in the world where a couple can live for $1000 a month. With a little bit of planning it will happen – 6-7 months in O Canada and 5-6 months away. No need to depend on a property for my retirement. I got rid of that albatross 4 years ago – best decision I made!

Bizarre property photos – there’s a kitchenette with a couch tipped up in front of the counter (such that you can see its underside), and a picture of a weirdly styled wall without a sense of the living-room around it.
Here’s an idea for him: if you want to sell your home in a competitive market, TRY A LITTLE. Maybe a little bit of care to the curb appeal (ie: no garbage buckets on the lawn); some pictures of the actual space…

“If that wasn’t the tipping point or a trigger for a deflation of an asset bubble, I don’t know what is.”

I think it’s great that Muir has admitted the limits to his understanding of the dynamics of asset bubbles. This kind of epistemological honesty is so rare these days among professionals who normally just BS in the situation.

just a general RE comment – was at a self improvement seminar on the weekend (i know, don’t judge me) and many people in the group sheepishly self-identified as realtors. the common theme was that they were all having a very bad year and felt like they had lost their mojo. the point of attending the seminar was to try and get something intangible back so that the good times could carry on. many of them seemed to think that their bad year had something to do with them personally and could see no other reason for the lack of deals being made. many also complained about the need to keep up the appearance of success even though the luxury car payments etc. were now unaffordable. one lady told me she was selling off her designer clothes and handbags and might lose her own house. if this is just the beginning of the downcycle, there is world of pain out there for these folks. can’t say i feel bad for them though…

[NoteToEd: those Roman ‘Self Improvement Seminars’ were notoriously ‘Darwinian’… Hmmm… ya know, with RogersPlace sitting empty this winter… the NetWorks and Breweries scrambling for something… for anything… And all those UHS sidelined by the BubbleBurst… What are the odds that if we pitched a new reality show: “Realtorial™Combat”… Heck, Ed – they’ve already got teams and everything: e.g. 21Centurions vs MaximusRealtus. Just sayin’…]

I almost forgot… it could be the shrewdest play yet in the sagging political fortunes of Her Imperial Empress Clarkigula. Bread & Circuses to quell the growing anger of a landless peasantry recently disabused of the mantra, “HomePrices Only Go Up!”… Throw a few Realtors™ to the lions and, “Bob’s your Uncle!”… BackInBiz.

One added advantage… given Her Imperial Empress’ penchant for hosting LavishTogaParties [just google™ it, DearReaders!] – the Province won’t have to spend a dime on ‘wardrobe’… I can see it now… The Imperial BoxSuite… PreGame ‘behind the scenes’ live coverage/highlights from the Vomitoria… I mean Victoria.

Well. You get the idea.

[NoteToEd: Politics as SpectatorSport was so much more compelling prior to the arrival of electronic media. Or, come to think of it, TheEnlightenment.]

One wonders if the agents were specifically marketed to. I think real estate sales is an awfully tough career if you’re not a complete optimist and believer in yourself. I’m thinking Annette Benning in American Beauty versus Jack Lemmon in Glengarry Glen Ross. I mean, look at this guy, the “hale, well and happy” agent who was just FC’d:http://www.bloodhoundrealty.com/BloodhoundBlog/?p=16191

Wow- so all these realtors probably thought they were making money hand over fist because they were being fairly compensated by the market for their talents? Talk about not being able to understand something because your income depends on you not understanding it!

What? And miss out on all the fun of going on TV and crying a sob story for all your friends and neighbors about being a poor paper-millionaire who just can’t make a go of it without a quick sale? The image of that poor sap pedalling away on his rickety old bike just about brought tears to my eyes. How could we all be so heartless here? This poor fellow is losing his speculative gains while in a related post above (from the legendary Devils Advocate I suspect) we now learn that some Realtors have gotten out the Cat-O-Nine-Tails and are busy whipping themselves for their personal failures as the housing bubble crumbles. We all expected to see them in the EI lineups but who ever predicted they would end up in group therapy or at self help and awareness seminars where they collectively lick their wounds and commiserate with one another?……where is my hanky….I feel more tears welling up.